Japanese Companies and Wages:

 Article Source:  https://mainichi.jp/english/articles/20220816/p2g/00m/0bu/035000c

Article:

TOKYO (Kyodo) -- Solid profits at major Japanese companies in recent earnings reports are unlikely to translate into near-term wage hikes in broad sectors due to the risk of a global recession, dashing Prime Minister Fumio Kishida's hopes for higher pay to blunt the impact of rising prices.

The Japanese currency's drop to 24-year lows against the U.S. dollar has served as a major profit driver for some blue-chip companies, boosting profits earned overseas and inflating the value of assets held abroad in yen terms.

Companies from automakers and components suppliers to energy companies reported upbeat earnings for the April-June quarter and revised upward full-year projections, driven by the yen's slide.

Ideas:

It seems like an unfortunate situation for Japanese wage earners that despite the solid earnings in Japanese companies, they still can't find a way to increase wages for their workers.

There could be combination of factors involved. Such as Japanese companies, which used to be focused on the long-term have become too much like western companies and only think of the short-terrm or the next quarters results.

Another idea is that Japanese companies have become just too risk adverse and don't want to risk any kind of extra spending possible, even if the spending helps the company overall.

Japanese companies, some or many, used to see the worker as a integral part of the company like stakeholders. Maybe those days are long gone in how Japanease companies see their workers.

And of course the present day situation might be too much for some companies as they are too focused on their profit margins have forgotten how to plan long-term for the good of the company,

And yes, the weak yen might be a strong point for some companies, especially export companies but its a major challenge for many companies such anyone who imports products from overseas.

Article:

Toyota Motor Corp. earlier this month raised its net profit forecast for the year to March 2023 to 2.36 trillion yen ($17.7 billion) from its previous forecast of 2.26 trillion yen.

"A weaker yen has a big positive impact on our sales," a Toyota official said.

The world's largest automaker by volume said the weaker yen pushed up its operating profit outlook by 670 billion yen. The company expects an operating profit of 2.40 trillion yen for this fiscal year.

Honda Motor Co. also lifted its full-year operating profit forecast recently due in part to the yen's weakness, while Subaru Corp. and Mitsubishi Motors Corp. reported strong growth in net profit for the three months that ended in June.

Ideas:

Maybe these major companies are seeing the benefits of the weak yen, but there are probably just as many companies not doing too well as a weak yen drives up prices for imports and there are just as many not doing too good.

And this is a major idea that the Bank of Japan, all along, has been thinking about. A weak yen helps the major export companies but at the same time its not so good for import companies and the Bank of Japan has to weigh the cost/benefit situation of all in the economy.

And another question might be even though Toyota and others are seeing the benefits of a weak yen, are they considering increasing the wages of their workers or just putting their profits in the banks.

Most likely the big companies are or have continued to increase the wages of their workers but what about all the other companies on the fringes whose profit margins are razor thin due to the weak yen.

Article:

Among seven major trading houses, six including Mitsubishi Corp. posted record net profits for the quarter with their resource development projects benefiting from the yen's weakening along with higher commodity prices after Russia's invasion of Ukraine disrupted supplies.

Video game giant Nintendo Co. posted a record net profit of 118.98 billion yen for the three-month period, as the weaker yen raised its overseas profits, offsetting sluggish sales of Switch consoles amid a chip shortage.

According to an SMBC Nikko Securities survey of 1,440 companies listed on the Tokyo Stock Exchange, their combined net profit in the April-June quarter rose 9.2 percent from a year ago to 12.03 trillion yen.

Ideas:

So lets be positive here and say as we see many companies are now experiencing positive profits, maybe they are going to increase the wages of their workers.

But are the wage increases going to be enough to offset the increase in inflation to where the average consumer now feels good about his pay and he can pay his bills and still have enough left over to go out and spend some in the economy.

Its seems this is the challenge that Prime Minister Kishida faces in getting companies to increase wages enough to where wage earners/consumers feel good enough to go out and spend without worrying about how they are going to pay their bills.

Wage earners/consumers have got to feel good about how much disposable income they have each month to go out once a week or so for shopping, restaurants, and so on.

If not consumer spending is never going to reach its potential in Japan wil be a major challenge for the Bank of Japan and how to increase consumer spending enough to see real economic growth.

Article:

The solid earnings come as Kishida continues to call on major companies to consider pay hikes. When the premier attended a gathering last month hosted by the Japan Business Federation, the most influential business lobby in Japan, he asked top executives once again for a 3 percent rise in wages.

Salary increases are a pillar of his government's efforts to mitigate the impact of rising commodity and food prices, which pose a major challenge for Kishida and were partly responsible for his Cabinet's approval rating slumping to a low of 51 percent in a Kyodo News survey last month.

The Bank of Japan is sticking to its ultraeasy monetary policy in stark contrast to the global trend of tightening and has repeatedly urged the need for robust wage growth.

Ideas:

Prime Minister Kishida can talk all he wants or suggest all he wants but if companies are not willing to take some risks and increase wages there might not be much he can do.

Last December, 2021, he also asked for a 3 percent increase in wages. The fact he is asking again suggests not much progress has been made in compaies increasing wages.

Perhaps the Japanese government, as an incentive, just an idea, should place a tax on these companies, whose profits are increasing yet still refuse to give any kind of increases to their employees.

But then of course, companies will find ways to hide their profits to make it look like they really don't have any profits to avoid the taxes and avoid paying wage increases to their workers.

The Bank of Japan most likely sees that a weak yen is good for the major Japansese export companies while weighing the cost/benfits for the rest of the economy.

Article:

The central bank says higher salaries should help spur consumer spending and eventually raise prices in a sustainable manner. The BOJ, which has long been battling deflation in Japan, sees the current hikes as temporary and caused by external factors.

Executives at Japan's two biggest airlines -- ANA Holdings Inc. and Japan Airlines Co. -- said recently that their basic policy is to reward their employees with higher wages when their earnings improve. ANA Holdings is the parent of All Nippon Airways Co.

ANA Holdings posted its first net profit in three years in the quarter that ended in June and JAL said its net loss narrowed in the same quarter from a year earlier.

Ideas:

Yes, higher salaries are the key to helping the economy improve which of course will increase overall consumer spending as consumers feel better about their extra disposable income.

And as consumer spending in the economy reaches as certain level companies will see there is increased demand for their products and services they will begin to increase prices as demand has reached as sustainable level in the Japanese economy.

But that is not going to happen if companies don't play their part and increase salaries for their employees.

The Bank of Japan will continue to maintain is low rate situation as they most likely feel there are just too many side-effects if the increase the key rate.

In 2020 or 2021 both JAL and ANA mentioned they were not going to layoff any employees because of the pandemic situation and instead were going to use the strategy of not hiring new workers and or through natural retirements going to maintain their present position.

Lets hope ANA and JAL follow through with wage increases for their employees and maybe other companies will see JAL and ANA as case examples and will do the same in the future.

Article:

But economists say the current solid earnings are likely to provide limited room for pay hikes.

"There is just not enough momentum to enable wage increases" across the board, said Saisuke Sakai, senior economist at Mizuho Research & Technologies.

"The positive impact of a weaker yen on exporters is seen as a temporary factor and nonmanufacturers, which account for the majority of Japanese companies, are still recovering from the pandemic," he said.

Ideas:

The economist may be correct, because after two plus years of maybe less than normal profits companies still don't have any room to give any kind of wage increases.

Just because ANA and JAL say they are going to increase wages in the future doesn't mean other companies have the ability to do the same.

But to be fair to companies they are caught in the short-term trap of quarterly earnings, stockholder anger about earnings and they can't afford to consider wage increases or even long-term strategies these days.

And yes, the weak yen might be a strong positive for export companies but for the rest of the economy and the majority of comapnies in the Japanese economy its a major challenge and yes, most likely they are still recovering from the pandemic and it might continue even into 2023.

Article:

The gloomy global economic outlook on the back of inflation and the impact of the prolonged war in Ukraine are likely leave top executives cautious about increasing personnel costs.

"We want to reward our employees" for the improved results, JAL Senior Managing Executive Officer Hideki Kikuyama told Kyodo News after a press briefing for its latest earnings. "But we are not in a situation where we can raise basic wages immediately."

JAL's quarterly net loss reflects the fact that travel demand is still recovering from the pandemic. A recent resurgence of new cases in Japan leaves the outlook uncertain.

Ideas:

Companies these days, and of course maybe with good reason, are always finding ways to be cautious as there are just too many challenges out there.

Its good that JAL at least said they are willing to increase wages whenver they can. At least they said something which is a positive sign. 

Travel, both domestic and international, might not recover soon as the pandemic is still hovering over the industry.

The shinkansens might be full and Haneda flights might be somewhat full but after two plus years of less than good revenues and profits its going to take time for companies like JAL and ANA to fully recover, expescially as fuel prices keep increasing.

Even if JAL, ANA, and the other budget airlines have full capacity on their flights its going to take time to overcome the two plus years of losses.

Article:

Some industries such as the utility sector are feeling the pinch from the weaker yen as the currency raises import costs, making it difficult to pursue salary increases.

Seven of Japan's 10 major power companies including Tokyo Electric Power Company Holdings Inc. reported a net loss for the three months that ended June. Soaring fuel prices triggered by Russia's war in Ukraine made thermal power generation more expensive.

Ideas:

The weak yen is having a major effect on some industries but the Bank of Japan might feel the increaing interest rates to make the yen and dollar somewhat equal might have too many side-effects for the Japanease economy overall.

Here is where the Japanese government can continue to step in and give subsidies to companies such as the utility companies as a a way to make sure they don't pass on their increased costs to the next in the supply chain including the final consumer.

But just how much should a government interfere in the normal workings of a market economy. But maybe at this point some kind of price controls with subsidies on a temporary basis might be a good idea.

Article:

Mizuho Research's Sakai says the uncertain business environment will keep the number of companies capable of raising wages low.

"To achieve the sustainable wage increases that the government wants, companies need to increase productivity" rather than relying on external positive factors such as a weaker yen, Sakai said. "The bar is still high."

Ideas:

Yes, increasing productivity is always a good idea, but what does that mean exactly.

How do you increase productivity in some of the traditional Japanease companies if they have done the same thing for many decades.

And how long will it take and how disruptive is it going to be for the average worker in the company.

Companies might willing to change and willing to increase productivity but at what cost for the company and its workers.

Companies might not be willing to to just change everything all at once and might need time, even years to become more productive.

Innovation should be at the heart of every company. If companies don't learn or know how to innovate and change their productivity will suffer and their profits will continue to suffer.

Japanese companies have got to find a balance between keeping its original idea of employees as important stakeholders and at the same time keeping its-self open for innovation and change and improved productivity.

Unfortunately the worker these days is seen as a cost and not a resource in a company,

Have a nice day and be safe!